Wednesday, February 09, 2011

Tony Abbott would make an awful CEO. If he put before a board the "budget cuts" he yesterday put before the public it would throw them back in his face.

As a means of funding his determination to abandon the flood levy his cuts would increase the budget deficit in 2011-12 and scarcely change the budget outcome in 2012-13.

The biggest cuts are actually deferrals. And one of them he says he would be prepared to reconsider.

His board might tell him he hadn't bitten the bullet.

He told the public his cuts were on top of $50 billion of savings and cuts outlined last year. His board might tell him the correct number is $11 billion, outlined to the public on election eve. The larger $50 billion figure includes measures with a zero or only indirect effect on the budget balance such as selling Medibank Private and not proceeding with the National Broadband Network.

His board might have told him the $11 billion figure is itself out of date.... The Treasury found holes in it of between $7 billion to $11 billion. The silliest was his mistake in counting as a saving the cut in the government's interest bill from the proceeds of selling Medibank Private, but not counting as a cost the dividends it would lose from selling it.

Even if he wanted to stick with the nonsense exposed by the Treasury (after all a Perth auditing firm gave it a tick) he would have to concede that the savings wouldn't now amount to $11 billion, and certainly not $50 billion. He had booked $2.6 billion of the savings in 2010-11. That year has already begun. We're seven months through it.

The truth is Abbott is not the main problem. And nor are his backstops, Hockey and Robb. And nor are their backstops, a small number of overworked often junior staff.

The main problem is we treat our Oppositions appallingly, and get the Oppositions we deserve.

Why did Abbott wait until just before the 2010 election to release his much-hyped plan to return to budget to surplus? Why did he delegate the task to Hockey and Robb rather than front up himself? And why ever after the hype did the plan project a return to surplus no earlier than Labor?

My guess is Abbott was humiliated by the quality of the work prepared on his behalf, unprepared to defend it in public.

He and Hockey seemed unprepared to defend this latest foray into budget costings. For 2011-12 their "cuts" remove $1800 million from the budget by removing the flood levy and put back only some $800 million, leaving the budget balance $800 million worse off than it would be under Labor. They seemed uncomfortable when this was pointed out. In the following year removing the flood levy costs the budget only around $300 million, some $700 million of which is offset by cuts and deferrals leaving the budget in front by a net $400 million or so, the merest fraction of a decimal point.

They could have done so much better had they had really good staff with access to information. Joe Hockey told me ahead of the release his staff relied on the published Mid-Year Economic and Fiscal Outlook released in November. A staggering amount has happened to the economic outlook since then, enough to turn this quarter's growth figures negative according to Westpac and according to the Treasurer.

For a while now wise Oppositions have shied away from unveiling anything that requires complex costing during an election campaign. Wayne Swan and Kevin Rudd took the process to an extreme in 2007 by releasing a so-called tax policy that was in all aspects but one a carbon copy of the government's, so they felt the figuring would be okay.

Risk adverse Oppositions are probably even worse than Oppositions that can't count. But that's our choice until something changes.

Last week in Canberra an especially-created parliamentary committee began plotting a change. But I don't like its chances.

Set up as a result of an ultimatum from country Independents in return for voting with the government it'll look at the best way to set up a Parliament Budget Office, modeled along the lines of the United States Congressional Budget Office. It would provide advice to the Opposition and the public independent of the government and Treasury. It would be the people's Treasury, free of direction from the executive and able to provide high quality economic and budget advice to whoever needed it.

Next week the Business Council of Australia is expected to line up behind the idea. It, like the rest of us, has a very strong interest in making sure Oppositions know what they are doing.

Last night at the ungodly hour of 11.00 pm the committee interviewed by video link representatives from the Office of the Parliamentary Budget Officer in Canada. They are keen to design something that will work. And I would like them to.

But I see near insurmountable problems. Appearing before the committee Treasury outlined the incredibly time consuming and consultative work that goes into preparing the forecasts we have. Its Tax Analysis division has 50 staff. In Finance the budget group has 250 staff. They and the Treasury's economic modelers toss ideas around in what the department calls an iterative process that continually refines guesses. Could it be duplicated? Not without enormous expense and tentacles that stretched into the heart of government.

Could Treasury do it for the Opposition? That gets us back to where we now. The Opposition wouldn't use the Treasury last time because it didn't trust it. And nor should it. Treasury is no more than a department built around serving the needs of its minister. To suggest that it can also serve the Opposition without telling its minister what it is doing dangerously blurs its mission. It is able to get away with costing election commitments at the moment - just - because it does it in the brief pre-election caretaker period when it is not subject to day to day ministerial direction.

But to ask it to do it now, when the Opposition desperately needs help, is probably untenable.

We need better oppositions than the ones we've got. We'll need very innovative thinking to get them.